Despite Ralph Lauren’s double-digit net revenue drop in the first quarter of 2018, the company still beat out analyst predictions.
Ralph Lauren reported earnings per diluted share of $0.72 on a reported basis and $1.11 on an adjusted basis, better than analyst’s estimate of $0.95, minus the restructuring-related and other charges that were due to actions associated with the company’s Way Forward plan for the first quarter of fiscal year 2018. This is an increase compared to the same period last year’s earnings per diluted share of $0.27 and $1.06 on an adjusted basis.
The brand reported better-than-expected quarterly profit, while continuing to cut lead times and reduce operating expenses by 13 percent.
“While we are addressing challenges in our business, we have significant opportunity ahead and we’re moving forward with urgency,” said Patrice Louvet, Ralph Lauren president and CEO. “Ralph and I are focused on actively evolving the brand expression and consumer experience so we can ultimately renew growth and get back to leading. We are continuing to build a strong foundation for future growth, as evidenced by our progress this quarter on the key elements of the Way Forward plan.”
Revenue Around the World
Overall revenues fell 13 percent to $1.35 billion on a reported basis, better than analyst estimates of $1.34 billion, due to distribution and brand exits, a strategic lessening of shipments and promotional activity to help quality of sales, as well as from an overall lower consumer demand. However, the company states that the first quarter revenue declines were in line with the company’s guidance of lower double-digit decrease, minus 225 basis points of negative foreign currency impact. The company plans to optimize wholesale distribution by closing 20-25 percent of its underperforming U.S. department store point of sales by the end of FY2018.
North American revenue fell in the first quarter 17 percent to $710 million, due in part to lower sales in both retail and wholesale outlets, driven by distribution and brand exits. Comparable store sales in North America fell 8 percent, including a 4 percent drop in brick-and-mortar stores and a 22 percent drop in e-commerce that reflected a planned reduction of inventory, reduced SKU count and overall promotional activity.
European revenue also faltered in the first quarter, falling 14 percent to $323 million on a reported basis, due to shifts in timing of shipments in wholesale, brand exits and reduced markdowns to improve sale quality. European sales saw an 8 percent drop in brick-and-mortar sales, and a 5 percent decline in e-commerce as the company focused on quality, pulling back on promotions.
Asia revenue in the first quarter only fell 1 percent, to $209 million, while comparable store sales grew 2 percent due to higher traffic.
In the first quarter of 2018, Ralph Lauren’s gross profit increased to $851 million on a reported basis, without around $1 million of inventory charges related to restructuring. Gross margin was 63.2% on both reported and adjusted basis, 210 basis points above the prior year on an adjusted basis.
The company’s full year guidance on a constant currency basis remains the same. For fiscal year 2018, Ralph Lauren expects net revenue to drop 8 percent to 9 percent. The company continues to expect operating margin for fiscal year 2018 to be around 9 percent to 10.5%.
In the second quarter of 2018, the company predicts net revenue to drop 9 to 10 percent.
The guidance for fiscal year 2018, excluding estimated pretax restructuring related and other charges to be expected to be recorded in connection with the company’s Way Forward plan of around $200 million.